There’s been some interesting action in the UK stock market this week. Some of the growth stocks with racy valuations have been dropping back. And some of the more-cyclical recovery shares have resumed their march upwards after a period of consolidation.
I think those moves make sense. Some growth stocks had been carried perhaps too far and too fast by momentum. And recovery stocks have been waiting recently for their time to shine. Meanwhile, pandemic news seems to be improving. Vaccines are rolling out in many countries. And the UK’s prime minister, Boris Johnson, has announced a road map to take the country out of lockdown and to reopen the economy completely.
Are these 5 UK shares to buy now?
Shares falling back this week include inspection prevention and contamination control products maker Tristel. And fantasy miniatures specialist Games Workshop. We’ve also seen weak share prices for vanadium flow battery company Invinity Energy Systems and metrology firm Renishaw.
In most cases, those stocks are backed by great and promising businesses with plenty of ongoing growth potential. Perhaps their only ‘sin’ is that investors have bid up the valuations. In the longer term, all four stocks could yet prove to be decent investments and I’m keeping them on my watchlist.
But fallen cyclical shares with pandemic-damaged businesses have burst back into life. I’m thinking of the airline operators Easyjet and International Consolidated Airlines. We’ve also seen buoyant share prices for retailer Frasers and education services provider Wilmington. And investors have been buying shares in insurance and travel business Saga.
I think all five of those businesses are interesting and it’s easy to see how they all stand to gain as the economy gets back on its feet. Of course, one day’s or even one week’s share-price action is no basis upon which to base investment decisions. But I do believe the strength in these stocks is a good heads-up. And a call to arms for me to focus on and research the underlying businesses and the investment opportunities now, as well as any risks around buying those shares.
Diversification by sector, stock and style
They are all going on my watch list and I’ll be monitoring them closely. If after doing my own thorough research I’m keen on the underlying fundamentals, I’ll look for opportune moments to buy a few of the shares. For example, I might pounce on them when the general stock market is having a down day. However, there’s always the possibility my analysis could be off-key and the shares could fall after I buy them.
But despite these shorter-term considerations, I think building a long-term portfolio requires some diversification. So I’m equally likely to have fast-growing companies and cheaper recovery stocks in my portfolio at any one time.
Overall, I reckon the most important aspect is for me to focus on when it comes to UK shares to buy is the quality of the underlying business. And once I’ve established that operations are of a high standard with the potential to grow, it’s a case of buying the shares when the valuation makes sense for my investment time frame
